UK’s services in unexpected lift to growth

Tim Wallace
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SERVICES expanded unexpectedly quickly in the UK in September, according to the purchasing managers index (PMI) from Markit, out yesterday.

Any figure above 50 represents expansion, and services in the UK rose from 51.1 in August to 52.9 in September on the index. The higher number shows the sector increased its pace of growth.

Composite PMI figures in the Eurozone, however, fell into decline. September’s figure came in at 49.1, down from 50.7 in August, led by services which plummeted to 46.5 from 49.7.

France and Germany barely saw any growth – their indices slowed to 50.2 and 50.5 respectively.

That was matched by Italy, whose composite index fell from 48 to 47.7 in the month. That small fall disguised larger sector changes – services fell 2.6 points to 45.8 whilst manufacturing declined more slowly, coming in at 48.3 compared with 46.9 in August.

Spanish composite PMI fell 1.1 points to 43.9 whilst Ireland’s, though still positive, fell from 51.5 to 50.8.

Analysts are hopeful that the UK may be perform more strongly than expected in coming months.

“Although this does not fully unwind the awful August drop, it is an unexpected step in the right direction,” said Nomura’s Philip Rush. “The current level is consistent historically with the underlying level of new business and expectations, whereas August appeared depressed. So we see this as a return to underlying fundamentals.

“Combined with the surprisingly strong bounce back in the manufacturing sector, the picture of the UK appears less gloomy now.”

The picture is less rosy for the Eurozone, however.

“The fall in September’s composite new orders index adds significant risk in terms of the potential for further downside news,” said Barclays Capital’s Francois Cabau. “It is also not reassuring is that we are seeing this weakness in almost all economies reported.

“Furthermore, Eurostat confirmed in its final estimate that second quarter euro area GDP rose by just +0.16 per cent quarter on quarter - the weakest increase since the second quarter in 2009.”